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PEASS INDUSTRIAL ENGINEERS PVT LTD Versus DEPUTY COMMISSIONER OF INCOME TAX

2016 (8) TMI 276 - GUJARAT HIGH COURT

Reopening of assessment - reasons to believe - information provided by DGIT (Investigation) Mumbai - Held that:- Perusal of the said reasons postulate that an information has been received by DGIT (Inv.) branch of Ahmedabad about bogus purchases wherein, it has been emerged that two survey operations were carried out by the competent authority, Kolkata in case of Vikrant Kayan and Arvind Kayan and the information which has been gathered is that these Kayans are well known entry operators of Kolk .....

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of the Act for reopening of assessment as from the material, the authority found that there is a reasonable belief that income of the petitioner – assessee has escaped assessment and therefore, it is justified to reopen the assessment. - It is also emerging from the order passed by the authority rejecting the objections submitted by the petitioner dated 21.1.2016 that each and every material submitted by the petitioner has been extensively dealt with and a detailed order came to be passed a .....

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e said belief cannot intercepted by exercising extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. - Decided against assessee. - SPECIAL CIVIL APPLICATION NO. 3277 of 2016 - Dated:- 5-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR SUDHIR M MEHTA, ADVOCATE CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE A.J. SHASTRI) 1. The present petition contains a challenge to the legality and validity .....

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ed return of income for the Assessment Year 2012-13 declaring total income of ₹ 4,80,87,320/- along with Tax Audit Report and Form Nos.3(c)(a) as also 3(c)(d) along with audited financial statement. The petitioner company received a notice under Section 143(2) of the Act dated 23.9.2013 and also received another notice under Section 142(1) dated 27.11.2014 along with questionnaire running into 20 questions calling for varied information. 2.2 The petitioner under a letter dated 12.12.2014 s .....

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income chargeable to tax had escaped the assessment and thereby, asked the petitioner to submit the return in the prescribed form within 30 days. The petitioner under a letter dated 25.4.2015 submitted before the authority that return of the petitioner company had been thoroughly scrutinized and scrutiny assessment order also came to be passed and in the said letter, the petitioner has asked for the reasons which have been recorded while issuing notice under Section 148 of the Act so as to see .....

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all material facts necessary for assessment and there is no failure on its part to do so. It was also contended that Investigating Wing has mechanically reproduced the reasons for reopening for the assessment which has been thoroughly scrutinized culminating into final scrutiny assessment order and therefore, it is the case of the petitioner while submitting objection that reopening under Section 148 of the Act is impermissible. Said letter of objection submitted by the petitioner came to be ex .....

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ing the legality and validity of the issuance of notice under Section 148 of the Act as also the order of rejection of objections submitted by the petitioner. 4. In the background of aforesaid fact, Mr.M.J.Shah, learned counsel appearing on behalf of the petitioner has submitted that notice for reopening served upon the petitioner is submitted after scrutiny assessment wherein, the petitioner has fully and truly disclosed all material relevant to the assessment and therefore, in view of the fact .....

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reopened and therefore, for forming a belief of reopening, no independent application of mind is reflecting. Learned counsel further submitted that TDS which has been deducted on the payments made and also the address, permanent account number and the amount of commission given to the party have been submitted before the Income-Tax Department at the time of previous scrutiny assessment and those materials have been examined in detail by the Assessing Officer and only thereafter, the scrutiny as .....

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t warranted. Learned counsel further submitted that if the executing authority is acting without jurisdiction or acting in a manner in which it is not permissible then, the High Court has ample power irrespective of alternative remedy to invoke extraordinary jurisdiction and to prohibit the authority from acting in the manner not in consonance with the law and thereby, requested the Court not to permit reopening of assessment once same has become final. No other submissions have been made. Howev .....

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reasonable belief that income has escaped the assessment. It was submitted by learned counsel that a specific information has been received by the DGIT (Investigation), Ahmedabad on 26.3.2015 wherein, it is stated that two surveys were carried out by the I/o. Pr.DIT (Inv.) Kolkata on Vikrant Kayan and Arvind Kayan respectively and these Kayans were well known entry operators of Kolkata and have been indulging in entries of bogus share capital, bogus bill of expenses and bogus long term capital .....

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r the statute with solicitude for the public exchange with an inbuilt idea of fairness to tax payer as well and therefore, at the initial stage, what is required is reason to believe but, not established fact of escapement of income and therefore, at this stage of issuance of notice, only question to be dealt with by Assessing Authority is whether there is any relevant material on which a reasonable person could have formed a reasonable belief and therefore, since this is merely a stage where a .....

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r not. To deal with this, we may reproduce the reasons which are recorded by the authority while issuing notice under Section 148 of the Act. Relevant extract of the said reasons read as under : 3. The assessee is engaged in the business of manufacturing of textile machinery and spare parts. The assessee has filed his return of income on 4.2.2014 declaring total income at ₹ 4,80,87,320/-. The case was selected for scrutiny and assessment was completed u/s.143(2) dated 23.2.2015 accepting r .....

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the country. The above mentioned assessee is also a beneficiary of ₹ 181,93 lacs (accommodating co. Tafford Fleur Pvt. Ltd.) pertaining to A.Y.2012-13. 5. Considering the facts stated above, I have reason to believe that the income 7. Perusal of the said reasons postulate that an information has been received by DGIT (Inv.) branch of Ahmedabad about bogus purchases wherein, it has been emerged that two survey operations were carried out by the competent authority, Kolkata in case of Vikra .....

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g co. Agnes Bruno Ltd.) pertaining to A.Y.2008-09 and based upon this material, the authority has issued notice under Section 148 of the Act for reopening of assessment as from the material, the authority found that there is a reasonable belief that income of the petitioner - assessee has escaped assessment and therefore, it is justified to reopen the assessment. 8. It is also emerging from the order passed by the authority rejecting the objections submitted by the petitioner dated 21.1.2016 tha .....

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has also been benefited and this part of the income appears to have been escaped assessment in the belief of the authority, the said belief cannot intercepted by exercising extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. 9. In the background of aforesaid circumstance available and reflected on record, it appears to this Court that the authority has applied its mind and has rightly relied upon the information available before it while exercising the power .....

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s and permits the Assessing Officer to assess or re-assess the income chargeable to tax if he has reason to believe that income for any assessment year as escaped the assessment. The word reason in the phrase reason to believe would mean cause or justification and after considering and analyzing the provision, it has been propounded that the expression cannot be read to mean that Assessing Officer should have finally ascertained the fact of legal evidence or conclusion. At the initial stage what .....

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ng, the factum of said aspect whether the petitioner is beneficiary or not, is not to be finally adjudicated upon by the Assessing Officer and therefore, this Court is not in a position to dwell into it but, only has to examine whether there is a reasonable belief arrived at or not and from the basis of aforesaid circumstance prevailing on record, it appears that the Assessing Officer is justified prima facie in arriving at conclusion to reopen the assessment. A liberty is always available to th .....

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would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairne .....

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f issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Wollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 17. The .....

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essing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice u .....

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18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. 10. In another case recently being dealt with by this Court in a group of tax appeals being Tax Appeal Nos.542 of 2015 and allied matters wherein, very issue whether at the inst .....

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eopening was admitted by the authority based upon the show cause notice along with accompanied material forwarded by the Excise Department to the Income-Tax Department and on the basis of said material provided by the Excise Department, the Assessing Officer has reopened the assessment of the assessee by issuing notice under Section 148 of the Act. The assessee of that case in the similar manner in this case has contended that the information provided by a different Investigating Team may not be .....

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the Assessing Officer has merely relied upon the show cause notice issued by the Excise Department and has not concluded finally and therefore, there is no illegality or irregularity in arriving at a belief that assessment deserves to be reopen. Relying upon the decision delivered by the Apex Court, it is held that action of reopening of assessment was found to be justified. Relevant Paragraph Nos.9, 10, 11, 12, 13 and 16 of the said decision worth to be taken note of and therefore, reproduced .....

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le to tax had also escaped assessment. When thus the Assessing officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not requi .....

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of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Autho .....

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ut it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied. 11. In case of Income Tax Officer vs Pur .....

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ment. The question, therefore, arose whether the information contained in the letter of Directorate of Investigation could be said to be definite information and the Assessing Officer could act upon such information for taking action under Section 147(b) of the Act. In such background, the Supreme Court observed as under: 12. Ms. Gauri Rastogi, the learned appearing for the respondents, has urged that the letter of Shri Bagai was received by the Income tax Officer on March 26, 1974 and on the ve .....

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e said letter, the Income Tax officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for t .....

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lliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding the validity of reopening of assessment, the Supreme Court held and observed as under: After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection wa .....

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e been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a .....

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i High Court considered the validity of reopening of assessment where the notice was based on information received from Directorate of investigation that the assessee was beneficiary of bogus accommodation entries. The Court while upholding the validity of reopening observed that sufficiency of reason cannot be considered in a writ petition. It was observed as under: 23 The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that .....

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P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INV-V) as regards the transactions entered into by the assessee company with number of concerns which had made .....

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held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrive .....

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